Global GDP Share vs. Equity Opportunity Set

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The following chart shows the world GDP share between the US, other developed and emerging markets and the global equity investment opportunity set. The US accounts for just 15% of the global GDP but over 31% of firms over $5 billion in market capitalization in the world are US-based. This is because many of the world’s highly successful firms are located in the country especially in the tech sector. Even in other sectors such as basic commodities like coffee, Starbucks Coffee(SBUX) dominates the world. The other point to remember is the universe of international stocks is huge as they are home to 69% of companies with over $5 billion market caps. So for investors looking to diversify globally there are plenty of companies available to invest in foreign markets.

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Via Bourbon Financial Management

Disclosure: No Positions

Comparing Yields on Australian Stocks, Bonds and Term Deposits: Chart

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Australia is one of the top countries for high dividend yields for stocks. Dividend yields are high in Australia due to the concept of franking which basically prevents dual taxation of dividends to both the company and the individual investor receiving the dividend.

When compared to other asset classes also Australian stocks have better yields. For instance, bonds yields less than 1% while stocks pay 5.7%. Similarly the 1 year rate on bank term deposit is just 1.65%.

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Source: Plunging bond yields & weak share markets amidst talk of recession – what does it mean for investors? by Dr Shane Oliver, AMP Capital

Dr.Shane notes in the above piece that stocks are even cheap relative to bonds due to recent price declines. From the article:

Finally, the decline in bond yields is making shares relatively cheap. The gap of 4.8% between the grossed-up dividend yield on Australian shares of 5.7% and the Australian 10-year bond yield of 0.94% is at a record high. Similarly, the gap between the grossed-up dividend yield and bank term deposit rates of less than 2% is very wide. In other words, relative to bonds and bank deposits shares are very cheap which should see them attract investor flows providing we are right and recession is avoided.